9.1 – Overview

Yesterday I watched the latest bollywood flick ‘Piku’. Quite nice I must say. After watching the movie I was casually pondering over what really made me like Piku – was it the overall storyline, or Amitabh Bachchan’s brilliant acting, or Deepika Padukone’s charming screen presence, or Shoojit Sircar’s brilliant direction? Well, I suppose it was a mix of all these factors that made the movie enjoyable.

This also made me realize, there is a remarkable similarity between a bollywood movie and an options trade. Similar to a bollywood movie, for an options trade to be successful in the market there are several forces which need to work in the option trader’s favor. These forces are collectively called ‘The Option Greeks’. These forces influence an option contract in real time, affecting the premium to either increase or decrease on a minute by minute basis. To make matters complicated, these forces not only influence the premiums directly but also influence each another.

To put this in perspective think about these two bollywood actors – Aamir Khan and Salman Khan. Movie buffs would recognize them as two independent acting forces (similar to option Greeks) of Bollywood. They can independently influence the outcome of the movie they act in (think of the movie as an options premium). However if you put both these guys in a single flick, chances are that they will try to pull one another down while at the same time push themselves up and at the same time try to make the movie a success. Do you see the juggling around here? This may not be a perfect analogy, but I hope it gives you a sense of what I’m trying to convey.

Options Premiums, options Greeks, and the natural demand supply situation of the markets influence each other. Though all these factors work as independent agents, yet they are all intervened with one another. The final outcome of this mixture can be assessed in the option’s premium. For an options trader, assessing the variation in premium is most important. He needs to develop a sense for how these factors play out before setting up an option trade.

So without much ado, let me introduce the Greeks to you –

Delta – Measures the rate of change of options premium based on the directional movement of the underlying

Gamma – Rate of change of delta itself

Vega – Rate of change of premium based on change in volatility

Theta – Measures the impact on premium based on time left for expiry

We will discuss these Greeks over the next few chapters. The focus of this chapter is to understand the Delta.

9.2 – Delta of an Option

Notice the following two snapshots here – they belong to Nifty’s 8250 CE option. The first snapshot was taken at 09:18 AM when Nifty spot was at 8292.

A little while later…

Now notice the change in premium – at 09:18 AM when Nifty was at 8292 the call option was trading at 144, however at 10:00 AM Nifty moved to 8315 and the same call option was trading at 150.

In fact here is another snapshot at 10:55 AM – Nifty declined to 8288 and so did the option premium (declined to 133).

From the above observations one thing stands out very clear – as and when the value of the spot changes, so does the option premium. More precisely as we already know – the call option premium increases with the increase in the spot value and vice versa.

Keeping this in perspective, imagine this – you have predicted that Nifty will reach 8355 by 3:00 PM today. From the snapshots above we know that the premium will certainly change – but by how much? What is the likely value of the 8250 CE premium if Nifty reaches 8355?

Well, this is exactly where the ‘Delta of an Option’ comes handy. The Delta measures how an options value changes with respect to the change in the underlying. In simpler terms, the Delta of an option helps us answer questions of this sort – “By how many points will the option premium change for every 1 point change in the underlying?”

Therefore the Option Greek’s ‘Delta’ captures the effect of the directional movement of the market on the Option’s premium.

The delta is a number which varies –

Between 0 and 1 for a call option, some traders prefer to use the 0 to 100 scale. So the delta value of 0.55 on 0 to 1 scale is equivalent to 55 on the 0 to 100 scale.

Between -1 and 0 (-100 to 0) for a put option. So the delta value of -0.4 on the -1 to 0 scale is equivalent to -40 on the -100 to 0 scale

We will soon understand why the put option’s delta has a negative value associated with it

At this stage I want to give you an orientation of how this chapter will shape up, please do keep this at the back of your mind as I believe it will help you join the dots better –

9.3 – Delta for a Call Option

We know the delta is a number that ranges between 0 and 1. Assume a call option has a delta of 0.3 or 30 – what does this mean?

Well, as we know the delta measures the rate of change of premium for every unit change in the underlying. So a delta of 0.3 indicates that for every 1 point change in the underlying, the premium is likely change by 0.3 units, or for every 100 point change in the underlying the premium is likely to change by 30 points.

The following example should help you understand this better –

Nifty @ 10:55 AM is at 8288

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = + 0.55

Nifty @ 3:15 PM is expected to reach 8310

What is the likely option premium value at 3:15 PM?

Well, this is fairly easy to calculate. We know the Delta of the option is 0.55, which means for every 1 point change in the underlying the premium is expected to change by 0.55 points.

We are expecting the underlying to change by 22 points (8310 – 8288), hence the premium is supposed to increase by

= 22*0.55

= 12.1

Therefore the new option premium is expected to trade around 145.1 (133+12.1)

Which is the sum of old premium + expected change in premium

Let us pick another case – what if one anticipates a drop in Nifty? What will happen to the premium? Let us figure that out –

Nifty @ 10:55 AM is at 8288

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = 0.55

Nifty @ 3:15 PM is expected to reach 8200

What is the likely premium value at 3:15 PM?

We are expecting Nifty to decline by – 88 points (8200 – 8288), hence the change in premium will be –

= – 88 * 0.55

= – 48.4

Therefore the premium is expected to trade around

= 133 – 48.4

= 84.6(new premium value)

As you can see from the above two examples, the delta helps us evaluate the premium value based on the directional move in the underlying. This is extremely useful information to have while trading options. For example assume you expect a massive 100 point up move on Nifty, and based on this expectation you decide to buy an option. There are two Call options and you need to decide which one to buy.

Call Option 1 has a delta of 0.05

Call Option 2 has a delta of 0.2

Now the question is, which option will you buy?

Let us do some math to answer this –

Change in underlying = 100 points

Call option 1 Delta = 0.05

Change in premium for call option 1 = 100 * 0.05

= 5

Call option 2 Delta = 0.2

Change in premium for call option 2 = 100 * 0.2

= 20

As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2. This should give you a hint – the delta helps you select the right option strike to trade. But of course there are more dimensions to this, which we will explore soon.

At this stage let me post a very important question – Why is the delta value for a call option bound by 0 and 1? Why can’t the call option’s delta go beyond 0 and 1?

To help understand this, let us look at 2 scenarios wherein I will purposely keep the delta value above 1 and below 0.

Scenario 1: Delta greater than 1 for a call option

Nifty @ 10:55 AM at 8268

Option Strike = 8250 Call Option

Premium = 133

Delta of the option = 1.5 (purposely keeping it above 1)

Nifty @ 3:15 PM is expected to reach 8310

What is the likely premium value at 3:15 PM?

Change in Nifty = 42 points

Therefore the change in premium (considering the delta is 1.5)

= 1.5*42

= 63

Do you notice that? The answer suggests that for a 42 point change in the underlying, the value of premium is increasing by 63 points! In other words, the option is gaining more value than the underlying itself. Remember the option is a derivative contract, it derives its value from its respective underlying, hence it can never move faster than the underlying.

If the delta is 1 (which is the maximum delta value) it signifies that the option is moving in line with the underlying which is acceptable, but a value higher than 1 does not make sense. For this reason the delta of an option is fixed to a maximum value of 1 or 100.

Let us extend the same logic to figure out why the delta of a call option is lower bound to 0.

For a moment we will assume this is true, therefore new premium will be

= -17.6 + 9

= – 8.6

As you can see in this case, when the delta of a call option goes below 0, there is a possibility for the premium to go below 0, which is impossible. At this point do recollect the premium irrespective of a call or put can never be negative. Hence for this reason, the delta of a call option is lower bound to zero.

9.4 – Who decides the value of the Delta?

The value of the delta is one of the many outputs from the Black & Scholes option pricing formula. As I have mentioned earlier in this module, the B&S formula takes in a bunch of inputs and gives out a few key outputs. The output includes the option’s delta value and other Greeks. After discussing all the Greeks, we will also go through the B&S formula to strengthen our understanding on options. However for now, you need to be aware that the delta and other Greeks are market driven values and are computed by the B&S formula.

However here is a table which will help you identify the approximate delta value for a given option –

Option Type

Approx Delta value (CE)

Approx Delta value (PE)

Deep ITM

Between + 0.8 to + 1

Between – 0.8 to – 1

Slightly ITM

Between + 0.6 to + 1

Between – 0.6 to – 1

ATM

Between + 0.45 to + 0.55

Between – 0.45 to – 0.55

Slightly OTM

Between + 0.45 to + 0.3

Between – 0.45 to -0.3

Deep OTM

Between + 0.3 to + 0

Between – 0.3 to – 0

Of course you can always find out the exact delta of an option by using a B&S option pricing calculator.

9.5 – Delta for a Put Option

Do recollect the Delta of a Put Option ranges from -1 to 0. The negative sign is just to illustrate the fact that when the underlying gains in value, the value of premium goes down. Keeping this in mind, consider the following details –

Parameters

Values

Underlying

Nifty

Strike

8300

Spot value

8268

Premium

128

Delta

-0.55

Expected Nifty Value (Case 1)

8310

Expected Nifty Value (Case 2)

8230

Note – 8268 is a slightly ITM option, hence the delta is around -0.55 (as indicated from the table above).

The objective is to evaluate the new premium value considering the delta value to be -0.55. Do pay attention to the calculations made below.

Case 1: Nifty is expected to move to 8310

Expected change = 8310 – 8268

= 42

Delta = – 0.55

= -0.55*42

= -23.1

Current Premium = 128

New Premium = 128 -23.1

= 104.9

Here I’m subtracting the value of delta since I know that the value of a Put option declines when the underlying value increases.

Case 2: Nifty is expected to move to 8230

Expected change = 8268 – 8230

= 38

Delta = – 0.55

= -0.55*38

= -20.9

Current Premium = 128

New Premium = 128 + 20.9

= 148.9

Here I’m adding the value of delta since I know that the value of a Put option gains when the underlying value decreases.

I hope with the above two Illustrations you are now clear on how to use the Put Option’s delta value to evaluate the new premium value. Also, I will take the liberty to skip explaining why the Put Option’s delta is bound between -1 and 0.

In fact I would encourage the readers to apply the same logic we used while understanding why the call option’s delta is bound between 0 and 1, to understand why Put option’s delta is bound between -1 and 0.

In the next chapter we will dig deeper into Delta and understand some of its characteristics.

Key takeaways from this chapter

Option Greeks are forces that influence the premium of an option

Delta is an Option Greek that captures the effect of the direction of the market

Call option delta varies between 0 and 1, some traders prefer to use 0 to 100.

Put option delta varies between -1 and 0 (-100 to 0)

The negative delta value for a Put Option indicates that the option premium and underlying value moves in the opposite direction

Sir
Thank you very much for explaining the difficult subject in easy way. It’s really appreciable & thank you once again for taking so much pain to explain rather complicated things.
Keep it up. Awaiting eagerly for next chapters.

Hi Karthik
Your contents are very lucid that a layman in the Dalal Street can know more about the options trading.
This chapter particularly

//the option is gaining more value than the underlying itself. Remember the option is a derivative contract, it derives its value from its respective underlying, hence it can never move faster than the underlying. If the delta is 1 (which is the maximum delta value) it signifies that the option is moving in line with the underlying which is acceptable, but a value higher than 1 does not make sense. For this reason the delta of an option is fixed to a maximum value of 1 or 100.//

its a fantastic explanation about the delta value. Thanks for the contents. Need More classes like this.

sir,thanks again(pnl) iam running a small business(mall) problem is iam unable to adjust money for trading,whatever comes by sales,borrowings will not be sufficieent for retail busin,iam unable to trade frely&give time to loss&repair in that pressure i end up loosing even i know many thiings which i learnt at somecost&3yrs now i dont want to waste my experience&knowledge&loose my passion which may turn to fortune in future if iam right so whats way,advise.

sir,thanks,i dont think investing works in these econimic conditions as middleclass i cant about my core business my wife will always looks iam only a supporter with all this network i want something on my own,thatswhy iam passioate for this business for timebeing iam planning to trde 8 lots nifty options&1 fut stock as ur t.analysis teached sorry iam working smartly to overcome&win

Sir, as you mentioned in this conversation:
“We will come up with a module called “Trading Strategies” which will include all this – meanwhile check this https://zerodha.com/expert-advisors/”
When that module will be published?

Hi kartik,
I am an intra day trader. So, I never wait expiry to collect premium. So my question is — suppose nifty CE with strike price of 8200 and premium of 120 and delta or 5.5. If I were execute an long or short order and price moves some favour in my direction then my profit is equal on long or short position and risk should also be same on long and short orders depending upon the points I trail on stop loss on either side. The only difference is that I have to deposit margin money on short orders. Am I correct??? Please clarify.

One thing I am not able to understand since long is, how derivative follows underlying stock/index price and that too in very much sync? As per my understanding option price is decided by last trade price transaction(LTP) of that option. Then following somehting should not be practically possible. Lets say for example, If nifty is going down and suddenly some people try to buy options in extremely large quantity then that option price should increase but it does not happen. I have observed there is no relation of volume in price of options. if option price is calculated based on delta, theta, vega, time decay etc then who decides it? is someone punches that into system or exchange computers calculate based on these greeks formula and display as LTP? or is it just simple last trade price?

A derivative by definition is a contract that derives its value based on an underlying. Hence technically speaking derivatives cannot influence the spot. Option price is not decided by LTP, in fact LTP is decided by Option Pricing which in turn is depended on the Option Greeks. Volume is a function of pure demand and supply…so that is a different perspective all together.

This was just an illustration – also do notice I have mentioned spot @ 8268 and strike @ 8250, hence this is an ITM option … therefore the Delta should be more than 0.5 – hence the assumption that the delta is 0.55.

Say NIFTY is trading at 8300 and there are still 10 days to expiry.Assume NIFTY 8400CE is trading at 30. Suddenly NIFTY spikes by 50 points and 8400CE suddenly becomes 50 +. Why the demand-supply equation doesn’t govern the option price ?Is it like sellers drop suddenly or buyers increase instantly ?Even if the option greeks control premium pricing,shouldn’t buy/sell numbers decide the price ? Sometimes the nifty spot price moves by 10 points (+ve), nearest CE moves by 2 rs sometimes and sometimes 5 rs. So what should be the definitive way to calculate ?

Dear kartik,
I have understood call & put options,but i m confused regarding trading with put on the trading terminal.
Lets say i buy nifty put 8150 @ 100.After 3 days the nifty spot is at 8000 and premium @ 110…so how do i profit from above trade…if i sell put 8150..i would make a loss of 110-100=10*25=250…am i right sir?

Saurabh – yes, the profit will be at least to the extent of the intrinsic value..which in this case happens to be 8150 minus 8000 = 150. However I dint want to say this as I was worried about creating confusion. Hence used the same numbers Pankit quoted 🙂

Wow! Thank you so much for pointing out these errors. I have made the necessary changes. The errors are not intentional and attributable to oversight. I would be very grateful if you can help in pointing out these errors. Please feel free to email these errors to me at karthik.r at zerodha dot com.

I know that if i am making loss as a buyer of an option i can simply allow my option to expire. and if i am making loss i will have to forgo the margin. But what if

A. As buyer of a call or put option i am making profit on the expiry but i don’t exercise the option. will i get the profit or not.
B. If i sold a call or put option and i am making profit on the expiry day but do not square off my position on the expiry.

When you buy an option you pay the full premium required and not really margins. You pay margins when you short option.

1) When you buy options and hold it till expiry then on the expiry day whatever profits you are entitled will be credited to your trading account.
2) When you short options and hold it till expiry then on the expiry day whatever profits you are entitled will be credited to your trading account. However STT on short option positions is quite high, so its advisable to close the trade yourself and not hold till expiry.

Rho is mainly with respect to Rate of change of underlying with changes in the interest rate. For all practical purpose the change in interest rate is minimal, and that makes Rho not a very active Greek…so I’m still contemplating to include this or not 🙂

As mentioned in the above comments, while trading options it is advised to use Greeks and other parameters not really TA. My doubt is that after TA only we can predict the direction and position according to the view. Option Greek will increase the success probability but TA will be the base.. Correct me if am wrong.

Sir,
I have a doubt. For example, if i sell a lot at X premium price and waited till the expire day. I think the value of premium will approaches 0 (or say some lesser value) at the time if i bought a lot. Then i may get profit of X/lot. Is it possible??

Hi Karthik bro,
In Buy side, If premium on particular day(lets say before 10 days or near to expire) is more than settlement i.e exercise amount then is it better to take the premium or is there any incentives if I let my ITM to expire and then exercise .

I’m glad to know that Varsity has ignited your learning enthusiasm. Yes you are right about Options, lots of possibilities with these instruments.

Yes you can hedge your future positions with Options. Both the examples you quoted are classic long future + long put hedging strategy….and both of them are very similar. Buying 66 PE or 67 PE does not make much difference.

In first case decline is in negative value(8200 – 8288) and in second case decline is in positive value(8288 – 8200) , but both have same scenario . please explain why there is no negative delta value in call option with some other example. Thanks.

hello mr kartik … i want to do option trading ,please guide me with how much (minimum) amount ,i can start with? 2) does option price (example yesterday dr ready 4300 put price was around 53+ and today was around 600+ …) does it move like stock price goes up n down? i mean want to know from a.b.c of live option trading..pls guide..thanks

Fantastic easy to understand and involving explanation. I have many times tried to study and understand Option Geeks from many sites but the explanation is so boring that I leave it mid way and close the site.
The difference between other site topics and your is that to understand the other sites the reader has to be an expert but by reading your site explanation the reader becomes an expert.
i love it.

Karthik bro.. plzz.. update commodity and currency module.. i want to learn how to trade in currency market..and also want to improve my knowledge on commodity market..i think many here many traders who are trading in commodity markets.. want to improve there skills..

understanding option with time principle is making me more tuff to solve the ENIGMA ,, i have an ready excel file with correct quote executed on the Trading Terminal , would lead to give a big junk of open interest to access .. i know there is a big potential behind the fortune gate …… i would strongly request you to give your few minutes of time on skype ,, i feel the place you and me stand here is we are just from skin of a teath .. i would like to share my knowledge with you on TIME ANALYSIS by W D Gann … ( square of 9 method) is generally understood as …

Hello Karthik Sir,
This module is absolutely perfect for anyone who wants to trade options. But one thing I’m confused about Delta risk is, how it (delta) will behave when price moves other way around.

For Example, in above screen shots
At 9:18 AM, NIFTY 8250 Call price was 144, when NIFTY spot was at 8292
At 10:00 AM, NIFTY 8250 Call price moves up to 149, when NIFTY spot was at 8315 (an increase of 4 points in call premium, I think at that moment delta would be around 0.15 to 0.20)

My confusion lies in the other side of the trade i.e. what if I have shorted the put option, how much Put Option premium has been reduced between 9:18 to 10:00 ? or what will happen to Delta of put option (will it increase or decrease) i.e.

If at 9:18 AM, Put 8250 delta would be around -0.45, when NIFTY spot was at 8292 (this put would be slightly OTM)
At 10:00 AM, Put 8250 delta would be what -0.4, -0.3, -0.2 ?, when NIFTY spot moves to 8315 (now PUT will moves slightly more OTM). My confusion lies in how much value Put option will loose ? In short I’m asking the rate of change in delta when prices moves other way around. I hope I’m not confusion you

I’m asking this question because when I look at the spread between Bid-Ask prices of options it gives me a sense that option are illiquid and it is better sell first and buy it later, and I don’t have to bother about STT when exchange auto-settle the ITM contracts.

Well, the Put option delta works the same way as the delta of a call, but in the reverse way. So if spot moves up, the call option delta increases and the put option delta decreases. Of course the delta for each strike varies based on the moneyness of the option. I’d suggest you read up further to know more on moneyness. By the way, 80%+ of all the F&O trading happens on options (Nifty especially), so there is ample liquidity in this particular market.

Ok NIFTY it is, I built my misconception on option by looking at RCOM current month option chain.
As to the question I asked, my confusion lies in the Writing Calls / Puts.

So going by the example you have mention in this chapter. How much is the change in delta when NIFTY spot moves down from 8315 to 8288. I’m simply asking how much change in delta a call option writer should expect when he/she short the call, since profit is directly related to fall in spot price.

Hi Karthik,
The content is very crisp and clear with very good examples and thank you for this work.I have one question over the Delta example you gave in the chapter.For the underlying movement of 100 delta of 0.05 and 0.2 will have increased premiums of 5 and 20.So I as as a Option call buyer will need to pay less premium in case of choosing the 0.05 delta right,but you have mentioned the 0.2 delta is better.Am I missing something.Please clarify..

Hi karthik.
Amazing stuff written by youand big help in understanding options.
1 thing I was not sure about, In the table above where delta value is given for ATM, ITM and OTM.
In The value of ITM, should it be between 0.6 and 0.8 or 0.6 and 1 because for otm it is written the other way around.
Thanks

Well, if the option is anywhere between ITM to deep ITM, then it can range anywhere between 0.6 to 1. The acceleration of delta slows down when the option traverses from deep ITM to further deep ITM. This is why you will notice a flattish curve towards the tail. The same is applicable to deep OTM to further deep OTM.

Hello sir
I want to know about changes in premium
For example yesterday’s banknifty close was 21640
Premium for call for strike price 21600 was 100
and for put it was 60
Now today banknifty has moved by
45 points either downward or upward now what
Would be changes in premium
I mean will be increment in premium equal to decrement
in another premium

Sir I have read all modules 2-3times
Today whatever I have knowledge about stock market, just because of you
I am so grateful to you and to your team
If we talk about banknifty what I have observed that if tomorrow’s opening is less than 50-60 points in either direction then premium of today’s ATM changes in one way and if opens by more than 50-60 points then in different way
Why this happens

sir .. today i buy nifty 9300 PE at 87.30 rs at the time of buying Put option spot was trading at 9305 ,,after 1 hr spot was trading at 9294 and put option is trading at 87.35 ….why this happen…. ideally it should be (9305-9244)*.50+87.30 =92.80 rs …am i right or wrong …or these option greeks are not work in case of intraday ….plz ans …

I am slowly taking into option trading even though I have burnt my fingers before. (Experience wasthe best teacher for me into business)

Now I am trying a strategy though with smaller lots. So far my results are mixed.

My post here is:
Nifty Jun 9800 CE on 11th May 2017 was 18.80 (Nifty spot value was around 9450at that time). Of course Nifty was on unexpected upswing for the previous day due to IMD monsoon data tricking in)

Nifty Jun 9800 CE on 15 May 2017 was 15.45 even though Nifty spot levels are around the same.

India Nifty VIX value was -0.11 and 0.44 respectively on 11th and 15th May respectively. (This means volatility has increased)

Then why the option price divergence between 11th and 15th May 2017? Unable to fathom. Is anything I am missing? Your help is appreciated.

With respect to your explanation of impact of Delta on premium. in the example where the Delta of first option is 0.05 and Delta of second option is 0.2. Didn’t understand the reason why would a trader be benefited by paying higher premium of 20. Please help explain.

Remember, the delta also showcases the probability of an option closing ITM. For example, if the delta is 0.7, it also means there is a 70% chance of the option closing ITM. So when a trader pays for a higher premium strike, he is looking for a brighter chances of closing ITM.

Hi Karthik,
I ‘ve a doubt about “Initial value of delta”.
I’m nowhere nearing to understand B&S model. What I’ve assumed is when spot price meets strike price the delta of that particular strike is 0.5 and say in call option the far most traded OTM stike price’s delta can be considered as zero. Similarly the far most traded ITM strike price’s delta can be considered as 1 and then on basis of relativity like percentile calculation all other strike price’s delta are calculated.
Is my assumption is correct? Pl shed some light over it.

Your understanding of delta values seems to be correct. However, the deltas itself change due to market forces which is captured by the B&S model. You can keep it simple by assuming that the deltas of each strike is more or less an outcome of what the B&S model throws up.

Hi Karthik,
If I buy a call option, at first I thought that I will have to wait till the expiry of the contract to actually gain profits or book ‘losses=premium’
Now with the new information of dealing with the premiums itself to gain profits I have a confusion.
Lets say I am dealing with NIFTY options for Strike Price 9700 and Spot price 9500 with 30 days to expire. The premium was 160 when I bought the shares and the lot size was 75. After 2 days the premiums rose to 180 with the spot price at 9600 and I sell the contract. Will I gain (180-160)*75 \? or will I book losses of 160*75 as I did not want the contract and sold it before expiry?

That means I am selling my contract to someone else for the current premium price, if I sell the the contract before expiry. But if I chose not to sell it and wait till the expiry then my profits/losses will be based on the theory which you said in the first few chapters of the options module.

Hi kartik,
i have a account with zerodha in the name of my momm. You people are really doing good job of giving guidance and deep & explanation with simply way and good example. i really like zerodha varsity. God bless u people

sir,
i have two question about maruti.
1.spot price-9647(down from 9705)
but CE of 9500 was increased by 8000 percent.
as the stock price came down than why call option of 9500 increased by these much amount.
2.if i bought call option of M&M with 770 at 11 rs and stock is trading at 757rs.
as i am bullish on stock and stock goes up and near to 765 the premium is also increase according to delta.but as per our calculation i made profit after 770+11 premium.but as stock goes up and as premium than if i sell my call option on higher premium than it would be profitable deal or not?
thank you.

Great work as usual but would like to share one genuine concern – zerodha clients who want to sell fat OTM weekly BNF options are restricted due to some LTP percentage regulation. So today i wasnt able to short 26000 pe/29000 ce. Customer care says there is a certain percentage decided early morning which decides how far one can participate in these OTM options. I wonder how/why zerodha doesnt have clients who want to indulge in far OTM strikes.

i) There is significant activity in these strikes – which indicates other brokerages allow
ii) As per today’s % informed from zerodha customer care i.e. 4.1%, i could sell 26400 pe which is a slightly more riskier strike. Now ifi want to hedge it with buying a pe of lesser strike, say 26100, i cannot
iii) It is tedious and impractical calling everyday to support centre and asking for this % (im told this keeps changing daily). Could you please take some steps like putting it on your website (best), send a mail to clients who are interested to do so (better)?

Hi Karthik, I did go thru the thread but i didnt see any answers on the people’s query (which is similar to mine). Not sure if this was the intended link you wanted to share. Just to reiterate, my concern is that i am not able to short far OTM strikes with regular orders – not BO/CO/MIS.

If a client wants to know which is the farthest OTM BNF weekly option strike price that can be traded on that day, do you intend him/her to call the customer care to know that particular day’s percentage? Can the process be simplified please?

Hi Karthik – Am new to options and trying to learn using zerodha. Must say it is awesome tutorial. I have a query . in the below example which you have given
“Call Option 1 has a delta of 0.05, Call Option 2 has a delta of 0.2
Now the question is, which option will you buy?
Let us do some math to answer this –
Change in underlying = 100 points, Call option 1 Delta = 0.05,Change in premium for call option 1 = 100 * 0.05, = 5
Call option 2 Delta = 0.2,Change in premium for call option 2 = 100 * 0.2,= 20
As you can see the same 100 point move in the underlying has different effects on different options. In this case clearly the trader would be better off buying Call Option 2. ”
I thought Option 1 is better as the trader will pay lower premium for the same strike price ? why is option 2 better ?